Polish Deal 3.0 – CIT and PIT | Tax Focus

With the beginning of 2023, let’s take a brief look at the major tax solutions that came into effect from 1^st January.

Changes in taxation with Estonian CIT (flat-rate company income tax payable at the time of profit distribution)

• Employment regulations have been modified. According to the amendment, the minimum employment requirement is deemed to be met even in cases where taxable persons employ persons who are exempt from PIT (e.g. persons under 26 years of age) or social security contributions (e.g. students).
• The deadline has also been clarified over taxable persons to submit a notification of opting for Estonian CIT (ZAW-RD), if the change is made during the tax year.
• It has further been clarified that a tax liability under a so-called preliminary adjustment is also fully extinguished after at least one full flat-rate taxation period, i.e. four tax years.
• According to the amendment, expenditures related to the use of passenger cars (including depreciation write-offs) are deemed to be non-business expenses if the car is not used exclusively for business but also for private purposes.
• The changes apply to the CIT Act only.

Changes in withholding tax (WHT) declarations

• The deadline for tax remitters to file initial declarations on the exercise of due diligence in verifying the conditions for the application of preferential taxation rules in the collection of WHT (under the pay and refund procedure) has been extended until the end of the second month following the month in which the threshold of PLN 2,000,000 is exceeded.
• The changes apply to both the CIT Act and the PIT Act.

Changes and deferral of the minimum income tax regime

• Taxable persons have been exempted from minimum tax between 1 January 2022 and 31 December 2023.
• The profitability ratio, below which taxable persons are required to account for minimum tax, has been increased from 1% to 2%, and the method for calculating the minimum tax has been modified by excluding the following:

1. 1. • payments under leasing contracts that are included in tax costs;
      • revenue and deductible costs directly related to such revenue from the sale of receivables to a financial institution engaged in factoring activities;
      • annual increases in electricity, heat and mains gas purchase costs;
      • excise duty (including trade in excisable goods), retail sales tax, gambling and lottery tax, fuel and emission charges;
      • 20% of the costs of salaries, social security contributions and contributions to employee capital plans.

• The method of determining the tax base has been modified, with the tax base being the sum of: 1.5% (instead of the previous 4%) of operating revenue (i.e. other than capital gains), excess passive costs, i.e. debt financing costs incurred for related parties, and excess intangible service costs.
• The possibility of opting for an alternative method of determining the tax base has been introduced, whereby the tax base is 3% of revenue, other than capital gains, earned by taxable persons during the tax year, provided that the choice of the method is declared in the tax return for the tax year in respect of which the choice has been made.
• A number of additional exemptions from minimum income tax have been added, including for the following groups:

1. 1. • taxable persons deriving the majority of their revenue, other than capital gains, from the provision of health care services;
      • taxable persons deriving the majority of their revenue from transactions where the price or the method of determining the price is laid down by statute or other regulatory act;
      • CIT taxable persons whose annual revenue does not exceed EUR 2,000,000 (i.e. small taxable persons);
      • utility companies;
      • taxable persons whose profitability in one of the last three tax years was at least 2%;
      • taxable persons that have gone into bankruptcy or liquidation or those undergoing reorganisation;
      • parties to cooperation agreements;
      • financial institutions engaged in factoring activities;
      • mining companies in receipt of state aid.

• The changes apply to the CIT Act only.

Changes in the regulations on controlled foreign companies (CFCs)

• The definition of the term “subsidiary” has been expanded.
• The prerequisite of a CFC’s high profitability, calculated as the ratio of revenue to the value of assets, in relation to held assets in the event of their potential disposal during the year, has been clarified.
• The applicability of reliefs under the CIT Act has been excluded.
• The changes apply to both the CIT Act and the PIT Act.

New conditions for Polish holding companies to apply preferential taxation rules

• The condition of not applying tax exemptions under Articles 20(3) and 22(4) of the CIT Act has been deleted from the definition of a holding company.
• The definition of a subsidiary no longer includes the condition of:

1. 1. • not holding more than 5% of shares in other companies;
      • not holding all rights and obligations in a company that is not a legal person;
      • not applying the exemption under Article 17(1) (34) or (34a) of the CIT Act, i.e. within a special economic zone or the Polish Investment Zone.

• The income tax exemption of 95% of dividends received by holding companies has been replaced by the full CIT exemption.
• The changes apply to the CIT Act only.

Repealing the “hidden dividend” regulations

• The “hidden dividend” regulations, intended to counteract corporate profit transfers, have been repealed following numerous interpretative doubts.

Changes in profit shifting taxation

• A number of changes in the calculation of profit shifting tax have been made, with in particular tax deductible costs only being now subject to the tax, and several conditions for related entities have also been clarified:

1. 1. • a related entity for which costs are incurred must not have its registered office or place of management in the Republic of Poland;
      • the condition of preferential taxation in a state of establishment, management, registration or location of a related entity has been simplified by replacing the condition of actual tax payment by a related entity in an amount that is at least 25% lower than the basic CIT rate applicable in Poland (which was 14.25%) with the condition that a related entity is subject to tax at a rate lower than 14.25% (with the algorithm for calculating the rate being specified);
      • the condition of 50% of revenue coming from passive receivables has been clarified;
      • related entities must transfer at least 10% of revenue obtained from Polish companies.

• The condition of preferential taxation in a state of establishment, management, registration or location of a related entity has been simplified.
• The burden of proof for the substantiation of costs lies with taxable persons.
• The changes apply to the CIT Act only.

New rules for the submission of applications and statements by taxable persons to tax remitters and tax remitters’ obligations

• The possibility of settling the annual exempt amount
  with several employers.
• A new PIT-2 form, being a comprehensive statement by a taxable person for the purposes of calculating monthly advances for personal income tax.
• The possibility for taxable persons to opt out of applying increased monthly employee deductible costs.
• Clarified rules for collection of advance payments from tax remitters.
• The changes apply to the PIT Act only.

Special rules for changing the form of taxation for 2022

• The new deadline for filing PIT-28 and PIT-28S returns will be unified and will be 30 April 2023.
• Entrepreneurs who, prior to 1 July 2022, applied a flat tax or registered revenue tax (flat-rate tax on registered revenue without deductible costs, Polish: ryczałt od przychodów ewidencjonowanych), were entitled to opt for taxation based on tax brackets for the entire 2022. In the case of retrospective taxation of revenue for 2022 based on tax brackets, this choice will not apply to subsequent years.
• The changes concern the PIT Act and the Registered Revenue Tax Act (Polish: ustawa o zryczałtowanym podatku dochodowym od niektórych przychodów osiąganych przez osoby fizyczne).

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Jakub Dittmer

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